Let’s assume that my description of the EU ex the UK is correct–that beneficiaries of the traditional order (the elites) are, and will continue to be, successful at thwarting structural change that would rock tradition but produce higher economic growth.

How should an equity investor proceed?

There are two schools of thought, not necessarily mutually incompatible:

–the first is that in an area where there is little growth, companies with strong fundamentals will stand out even more from the crowd. This lucky few will therefore gain much of the local investor interest, plus the vast majority of foreign investor attention. If so, in places like continental Europe or Japan one should look for fast-growing mid-cap companies with global sales potential for their products and services. These will almost certainly outperform the market.

The more important question for an equity investor is whether they will do as well as similar companies domiciled and traded elsewhere.

–my personal observation is that the general malaise that affects stock markets in low-growth areas like Japan or the EU infects the fast growers as well. The result is that they don’t do as well as similar companies elsewhere. I haven’t tried to quantify the difference, but it’s what I’ve observed over the years.

It may be that the local market is offended by brash upstarts. It may be that local portfolio managers deal only in book value and dividend yield as metrics. It may simply be the fact that local laws prevent owners from eventually selling to the highest bidder, thereby damping down the ultimate upside for the stock. One other effect of a situation like this is, of course, that entrepreneurs leave and set their companies up elsewhere.

The bottom line for a growth investor like me is that these areas become markets for the occasional special situation, not places where I want to be fully invested most of the time. Because of this, and because of Brexit, the UK assumes greater importance for me. So, too, Hong Kong, as an avenue into mainland China. And to the degree I want to have direct international exposure–which means I want to avoid the US for whatever reason–emerging markets also come into play.

A final thought: one could argue that the lack of investment appeal I perceive in Japan and continental Europe has nothing to do with political or cultural choices. Both areas have relatively old populations. If it’s simply demographics, signs of similar trouble should be appearing in the US within a decade. I don’t think this is correct, but as investors we should all be attentive to possible signs.